Goldman Sachs Throwing In The Towel On Small Caps (For Now)

While the Dow and the S&P 500 market continue to grind slowly, inexorably higher, some folks out there are already taking some chips off the table, spying some signs of weakness among the market’s leading movers.

Case in point: Goldman Sachs earlier today told its clients to back off on the Russell 2000 index of small-cap stocks, just over a month after calling on investors to go long on small-caps. The paring back didn’t seem to actually hurt smalls on this particular day, with the Russell 2000 finishing with a marginally larger gain than the blue-chip Dow, and coming in in-line with the S&P 500.

Even so, it suggests some new signs of caution are percolating out there in the marketplace. Goldman made their initial bullish recommendation on Jan. 26, calling for an 860 target when the Russell 2000 was hovering around the 800 level. The thinking then was that improving U.S. macroeconomic data and more Fed easing would boost the Russell. Well, the small-cap index did rise a bit more shortly after that call, but since then it’s spent the past month in no man’s land, bouncing between 810 and 830. That ultimately forced Goldman to pull the plug on its call today.

The worry, though, is that small caps are hardly alone in stalling. While the S&P 500 continues to chug merrily higher, the Dow Transports fell 3.1% in February, while copper and EEM, the emerging-market ETF, basically ran in place for much of February. On Tuesday, Bob Sluymer, a technical analyst at RBC Capital Markets, argued that “a series of corrections have been underway group by group, theme by theme for the past 3-5+ weeks.” Might some caution be warranted ahead?

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